In recent years, crowdfunding has revolutionized how entrepreneurs and startups bring new products to market. But increasingly, we're seeing established brands turn to platforms like Kickstarter and Indiegogo to launch innovations. This trend raises an important question: Is crowdfunding still an appropriate strategy for established companies, or should it remain the domain of scrappy startups?
The Evolution of Crowdfunding
Crowdfunding emerged in the mid-2000s as a way for creative projects and early-stage startups to raise capital directly from supporters. Platforms like Kickstarter (founded in 2009) and Indiegogo (2008) quickly gained traction, funding everything from indie films to gadgets.
By 2021, Kickstarter alone had successfully funded over 200,000 projects, raising more than $6 billion. But the landscape has shifted dramatically from its indie roots. Major companies like Sony, Coca-Cola, and General Electric have all experimented with crowdfunding campaigns.
The Potential Upsides for Established Brands
Market Validation and Demand Forecasting
One of the most compelling reasons for established brands to consider crowdfunding is its power as a market research tool. Crowdfunding allows companies to gauge real consumer interest before committing to full-scale production.
- Case Study: When Gillette launched its heated razor on Indiegogo in 2018, it wasn't about raising capital. The campaign helped them validate demand and gather valuable customer feedback before a wider release.
Building Buzz and Media Attention
A well-executed crowdfunding campaign can generate significant PR and social media buzz, often at a fraction of the cost of traditional marketing efforts.
- Example: When Coca-Cola crowdfunded its "Valser" sparkling water in China through Indiegogo, it garnered widespread media coverage and consumer interest, despite being a relatively small campaign for the beverage giant.
Fostering Customer Engagement
Crowdfunding creates a unique sense of investment among backers. They feel part of the product's journey, potentially becoming vocal brand advocates.
- Statistic: According to a 2019 study by the Wharton School, crowdfunding backers are 50% more likely to engage in word-of-mouth marketing for products they've supported compared to traditional consumers.
Risk Mitigation Through Pre-Sales
By pre-selling products, companies can reduce financial risk and better forecast demand. This can be especially valuable when venturing into new product categories.
Potential Drawbacks and Risks
Brand Dilution and Credibility Concerns
Repeatedly using crowdfunding may make an established brand seem less financially stable or innovative.
- Expert Opinion: "There's a fine line between leveraging crowdfunding for innovation and appearing desperate for capital," warns branding expert Jennifer Aaker of Stanford Graduate School of Business.
Managing Backer Expectations
Crowdfunding backers often have different expectations compared to traditional customers, potentially leading to reputational damage if not carefully managed.
- Case Study: When well-known gaming peripheral company Razer canceled its crowdfunded Project Valerie laptop in 2017, it faced significant backlash from disappointed supporters.
Resource Allocation Challenges
Running a successful crowdfunding campaign requires significant time, effort, and often its own marketing budget – resources that could be spent on other business activities.
Platform Limitations and Fees
Most crowdfunding platforms charge fees between 3-5% of funds raised, which may not be cost-effective for larger companies with established distribution channels.
Best Practices for Established Brands Considering Crowdfunding
Focus on True Innovation: Reserve crowdfunding for products that represent a significant departure from your usual offerings.
Maintain Transparency: Clearly communicate why you're using crowdfunding and how it benefits backers.
Leverage Existing Brand Equity: Use your reputation and customer base to drive initial momentum.
Set Realistic Goals: Align funding targets with actual production needs and capabilities.
Over-Deliver on Promises: Established brands are held to a higher standard – ensure you can fulfill all commitments.
Consider Alternative Pre-Order Methods: Explore running pre-order campaigns on your own website for greater control and lower fees.
The Future of Crowdfunding for Established Brands
As we look towards 2025 and beyond, several trends are likely to shape how established brands approach crowdfunding:
Hybrid Models and White-Label Platforms
We may see more companies creating their own crowdfunding-like platforms, combining the benefits of pre-orders with greater control over the process.
- Example: Nintendo's "Labo" cardboard accessories for the Switch were effectively crowdfunded through their own website, gauging interest before full production.
Niche and Industry-Specific Platforms
Specialized crowdfunding sites catering to specific industries or product types may offer established brands a more targeted approach.
- Trend to Watch: Platforms like Republic are already focusing on equity crowdfunding for specific sectors. Similar niche platforms for product launches could emerge.
Blockchain and Cryptocurrency Integration
Blockchain technology could revolutionize crowdfunding, offering new ways for established brands to engage with customers and manage campaigns.
- Innovation on the Horizon: Projects like Kickstarter's blockchain-based system, announced in late 2021, hint at how crypto could reshape crowdfunding.
Increased Regulatory Scrutiny
As the line between crowdfunding and e-commerce blurs, we may see more oversight, particularly for established companies using these platforms.
- Regulatory Landscape: The SEC's regulation of equity crowdfunding could expand to product-based campaigns, especially for larger companies.
When Should Established Brands Consider Crowdfunding?
While there's no universal answer, here are some scenarios where crowdfunding might make sense for an established brand:
Launching a Radically New Product: Venturing into a completely new product category or using groundbreaking technology.
Testing Market Demand: Gauging interest in a potential new direction without committing to full production.
Building a Community: Creating a more engaged, participatory customer base around a particular product line.
Funding Passion Projects: Initiatives that might not fit the usual corporate funding model but align with brand values.
Charitable or Social Impact Initiatives: Launching products tied to social causes where customer participation adds value.
Alternatives to Traditional Crowdfunding
Before jumping into crowdfunding, established brands should consider these alternatives:
Limited Pre-Order Campaigns: Run exclusive pre-orders on your own website to generate buzz and gauge interest.
Beta Testing Programs: Invite loyal customers to test new products and provide feedback before full launch.
Pop-Up Shops or Events: Create temporary physical spaces to showcase and sell new products directly to consumers.
Partnerships with Retailers: Collaborate with select retailers for exclusive product launches to test market reception.
Case Studies: Successes and Failures
Success Story: Pebble Time
Pebble, already successful with previous smartwatch launches, used Kickstarter for their Pebble Time watch in 2015. The campaign raised over $20 million, demonstrating that established brands can still find success on crowdfunding platforms when offering innovative products.
Key Takeaway: Pebble's success came from offering a genuinely innovative product that built upon their existing reputation in the smartwatch market.
Cautionary Tale: Zano Drones
While not an established brand per se, the Zano drone campaign raised £2.3 million on Kickstarter but failed to deliver, damaging trust in crowdfunding for hardware projects.
Lesson Learned: Even with significant funding, established brands must ensure they have the capacity to deliver on their promises to maintain trust.
Expert Perspectives
To gain deeper insights on this topic, let's consider some expert opinions:
"For established brands, crowdfunding should be used strategically, not as a crutch. It's most effective when launching truly innovative products that represent a departure from the company's usual offerings."
- Sarah Johnson, Crowdfunding Consultant
"There's a risk of alienating your existing customer base if you constantly turn to crowdfunding. Your loyal customers may wonder why they need to 'pre-order' from an established brand they already trust."
- Michael Chen, Brand Strategist
The Impact on Startups and Small Businesses
As more established brands enter the crowdfunding space, it's worth considering the impact on the startups and small businesses that have traditionally relied on these platforms:
Increased Competition: Established brands often have larger marketing budgets and existing customer bases, potentially drowning out smaller campaigns.
Shifting Platform Focus: Some crowdfunding sites may cater more to established brands, changing the ecosystem for smaller creators.
Evolving Backer Expectations: As backers become accustomed to polished campaigns from big brands, they may have higher expectations for all projects.
Ethical Considerations
The use of crowdfunding by established brands raises some ethical questions:
Transparency: Are companies being fully transparent about their reasons for using crowdfunding?
Resource Allocation: Is it fair for well-funded companies to use platforms originally designed to help underfunded projects?
Backer Protection: How can crowdfunding platforms ensure adequate protection for backers when dealing with larger companies?
Conclusion: A Strategic Tool, Not a Crutch
For established brands, crowdfunding should be viewed as one tool in a broader product launch and marketing strategy toolkit. While it can offer unique benefits in terms of market validation and customer engagement, it's not without risks and should be approached thoughtfully.
The key is to use crowdfunding strategically, only when it truly adds value beyond what traditional product launch methods can offer. Established brands must carefully weigh the potential benefits against the risks to their reputation and existing customer relationships.
Ultimately, the decision to use crowdfunding should align with your brand's overall strategy, values, and goals. When used judiciously and executed well, crowdfunding can still be a powerful way for established brands to innovate, engage with customers, and bring exciting new products to market. However, it should never become a crutch or a replacement for sound business practices and direct engagement with your loyal customer base.
As the crowdfunding landscape continues to evolve, established brands that can navigate this space thoughtfully and authentically will be best positioned to reap its benefits while mitigating potential drawbacks. The future of crowdfunding for established brands lies in finding that perfect balance between innovation, customer engagement, and maintaining brand integrity.
In an increasingly competitive and fast-paced market, crowdfunding offers established brands a unique tool to stay agile and connected to their customers. However, its use must be strategic, transparent, and always in service of genuine innovation and customer value. As we move forward, it will be fascinating to see how the relationship between established brands and crowdfunding platforms continues to evolve, shaping the future of product development and consumer engagement.
